UK economic growth slowed more-than-expected in February as a slump in car manufacturing undermined a strong rebound in holiday bookings following the easing of Covid travel restrictions.
The Office for National Statistics said gross domestic product rose just 0.1% in February, compared with a monthly growth rate of 0.8% in January as the economy recovered from the Omicron variant of the coronavirus.
City economists had forecast a monthly growth rate of 0.3%. Overall, the economy was 1.5% larger in February than before the pandemic.
Before Russia invaded Ukraine at the end of February, the question arose as to the strength of the economy. Production slumped as automakers continued to struggle to source parts as global supply chains were disrupted and key components were in short supply.
Activity in the industry fell 0.4% for the month, driven by a 5.4% decline in transportation equipment manufacturing and a 4.3% decline in computer, electronics and optical products, where the disruption in availability of microchips has impacted production volumes around the world.
Tourism surged after the easing of pandemic restrictions led to a surge in UK and overseas travel bookings, with growth of 33.1% for travel agents and tour operators. The accommodation sector, which includes hotels, saw a 23% increase in activity as more people traveled within the UK, contributing to the first month of positive growth for hotels and campsites since August.
However, growth in the services sector of the economy slowed amid a contraction in the healthcare sector, largely reflecting a fall from the high levels of NHS test-and-trace and vaccination programs in December and January when Omicron was at its peak.
GDP graph
The latest snapshot comes as business leaders and economists warn the UK is likely to struggle for growth in the coming months as soaring energy bills and the rising cost of weekly shopping drag down consumer spending power.
“The news that the economy barely grew in February suggests the economy had a little less momentum in the first quarter than we previously thought,” said Ruth Gregory, senior UK economist at consultancy Capital Economics. “[It] increases the risk of a contraction in GDP in the coming months as pressure on real household incomes mounts.”
Thomas Pugh, economist at accounting firm RSM UK, said February could be the last month of growth for a while. “Rising fuel prices, falling business and consumer confidence and supply chain disruptions will start to make themselves felt from March and really kick off in April, when consumer energy prices are up 54%,” he said.
Some businesses said disruption from storms Dudley, Eunice and Franklin during the month hampered trade, including in the construction industry, restaurants and takeaways, hair and beauty salons, and theme parks and holiday centers. Some companies reported positive effects, e.g. B. fences, torch sales and temporary off-grid power supply.
As a result of the impact on the construction industry, as sites had to close and cranes were idled amid the disruptions, production in the construction sector fell by 0.1% over the month.
Suren Thiru, the head of business at the British Chamber of Commerce, said the government needs to provide more financial support to businesses and businesses to meet mounting cost pressures.
“The February slowdown is likely to mark the start of a prolonged period of significantly weaker growth as rising inflation, rising energy bills and higher taxes increasingly damage key drivers of UK manufacturing, including consumer spending and business investment,” he said.
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It comes amid mounting pressure on Chancellor Rishi Sunak over his wife’s tax affairs and criticism of his spring declaration last month for a lack of action to help those most in need during the cost-of-living emergency.
Sunak admitted the economy faced uncertainty, although he argued £22billion in cost-of-living support would be made available to families this year, as well as £1,000 in tax cuts for half a million small businesses.
“Russia’s invasion of Ukraine is creating additional economic uncertainty here in the UK, but it is right that we are responding vigorously to Putin’s unprovoked invasion,” he said.
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